[Event Recap] Risk-Based Budgeting for Natural Disasters Workshop: Philippines
The Philippines, located in the Pacific ring of fire, is one of the world’s most high-risk countries. Every year, it is hit by disasters such as typhoons, earthquakes, volcanic eruptions, and floods. Over the past decade, the country has become a risk finance champion in the region, expanding the menu of tools and instruments for financial resilience to disasters. The innovations include the institution of the first catastrophe bond and development of a parametric insurance program for the Government, among many others. Following findings of the World Bank PER on post-disaster spending, the Government is now geared towards the new goal: finding a way to integrate disaster risks considerations throughout the entire budget cycle.
The “Risk-Based Budgeting (RBB) for Natural Disasters” workshop, held on March 21, 2023, aimed to start the technical conversation with a select group of officials from the Department of Budget and Management, Philippines and World Bank staff on the entry points and the process for integrating disaster risk into the Government budget, from its preparation to accountability. This workshop was part of the Government’s commitment to developing a comprehensive RBB framework to be updated annually.
The virtual workshop hosted around 15 participants and featured four speakers: Stephanie Allan and Nicholas Travis (both Senior Public Financial Management Specialists), Daniel McGree (Senior Actuary Specialist), and Gonzalo Pita (Leading Catastrophe Modelling Specialist). Undersecretary Joselito R. Basilio (Department of Budget and Management, Philippines) provided the opening remarks, while Tatiana Skalon (Financial Sector Specialist, Crisis and Disaster Risk Finance, World Bank) set the stage and facilitated the workshop.
The two-hour workshop was divided into three main sessions:
- Session 1 – Risk-Based Budgeting for Natural Disasters: An Overview was presented jointly by Stephanie Allan and Nicholas Travis. This session dealt with the definition of RBB for natural disasters and talked about the entry points of disaster risk in public budgeting cycle, from budget preparation, budget authorization, budget execution to budget accountability. The speakers also presented case studies from different countries, e.g., contingent liability management in Colombia, advance procurement agreements in Japan, ex-ante framework for budget reallocation in Albania, and disaster budget tagging in Ethiopia. They flagged how the Philippines is considering disaster risks in its public asset management and how the country has advanced on climate tagging. The session included an engaging group discussion in which participants were divided into two groups. Each group was asked to select one of the RBB entry points previously discussed, which they thought could be worth adopting in the Philippines. For the selected intervention area, the following questions were raised: “Why did you select this area of risk-based budgeting for natural disasters?”, “Who would need to be involved in the implementation?”, and “What could be achieved in the first year of implementation?”. Participants from each group then presented their findings, highlighting that budget preparation and execution are among the primary focus areas for integrating disaster risk considerations.
- Session 2 – Solutions and Instruments for Financing Post-Disaster Costs was presented by Daniel McGree. The session focused on the importance of physical, social and financial resilience, risk layering (and how it supports RBB for natural disasters), and sources of funding and their trade-offs. The session discussed, as an example, Indonesia’s State Asset Insurance Program. A case study set in Jamaica was also presented to illustrate comprehensive risk layering.
- Session 3 – Catastrophe Modelling was presented by Gonzalo Pita. The session provided an overview of catastrophe risk models, and elaborated on the risk modelling framework and risk model outputs. The presentation addressed the question, “How will risk modelling look like at the national level?” The session also highlighted the role of information in risk modelling, with a focus on the Philippines’ highly successful National Asset Registry System (NARS). Current analytics capabilities were explained through appropriate examples.
Tatiana Skalon concluded the sessions with a synopsis of the current situation in the Philippines, where she described the four pillars of the RBB framework and outlined how information about disaster risk can be used to inform the annual budgeting cycle.
This was followed by a short Q&A session and closing remarks.
- Philippines has many different disaster risk finance instruments, the effectiveness of which can be enhanced by putting them under one umbrella, allowing relevant agencies to easily identify how and where to allocate budget and how much and through which channels the finances should be disbursed.
- Factoring in disaster risk in the annual budgeting cycle in the Philippines will entail the development of a RBB framework that is based on quantified government disaster-related contingent liabilities to guide decisions on the government budget and help coordinate multiple activities. This framework will be developed in coordination with other key government agencies. This also entails cascading the national framework to public agencies to connect national-level planning with sector-level funding requirements, and cascading the national framework to local government units–the first responders to disasters.
- Budget preparation and execution, such as budgeting for disaster risk financing instruments, are among the key priority areas in RBB for natural disasters in the Philippines.
- Data is critical to RBB for natural disasters and the RBB framework will rely on NARS for analysis.
The participants showed keen interest in attending a technical deep dive on risk financing instruments.
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